April Was Record-Setting for the S&P 500 by One Measure
(Bloomberg) -- The S&P 500 Index has had better months than the more than 5% gain it posted this April, but never before has a rally been so widespread and far reaching, according to at least one measure tracked by Bloomberg.
During 18 sessions this month through trading on Thursday, 95% or more of the index’s members traded above their 200-day moving average. That’s the most days ever observed in a single calendar month and double the previous high of nine days in September 2009.
Just hitting the 95% threshold is a rarity. Prior to this month, the S&P 500 only eclipsed the mark in a grand total of 17 trading days going back to 1990, when Bloomberg began compiling the data.
The index also set a new single day record on April 21 when 97% of members closed above their 200-day moving average. Prior to this month, the previous high was 96.6% set on Oct. 19, 2009.
The average daily tally for the number of companies trading above their long-term price averages was 95.8% for the month. For context, that’s more than 30 percentage points higher than the 63.8% daily average for the metric since 1990.
The broad-based rally across the index comes as its members have upended Wall Street analysts profit projections. Of the 301 companies in the S&P 500 that have reported results so far, about 87% have exceeded analysts’ forecasts.
The sweeping nature of the rally combined with the unexpected surge in corporate earnings has helped cushion any down days for the benchmark. Friday is poised to be the 30th consecutive day in which it hasn’t seen a loss of 1% or more. That would be the longest such streak since the beginning of the Covid-19 pandemic.
That such a huge proportion of index members are trading above the mark should be viewed as yet another warning sign that the market may be overheating, wrote Matt Maley, chief market strategist for Miller Tabak + Co., in an April 26 note.
“The fact that 95% of the S&P 500 is now above its 200-day moving average is NOT a bullish sign,” Maley wrote. “Yes, a high number of stocks above their 200 DMA’s is usually positive, BUT it is NOT bullish when the number becomes extreme (like it is now…at 95%). In other words, this data point is much like sentiment. When it is strong, it is positive…but when it becomes extreme, it becomes a contrarian indicator!”
History, however, shows that such a rally could portend more predictable future returns.
Chris Verrone, head of technical & macro research at Strategas, points out that historically such breadth bodes well for future returns.
“This might surprise you, but there’s much tighter forward return dispersion when you’re very overbought,” he wrote in an email to Bloomberg. “If you just look at the dates in last say 50+ years where you had greater than 95% of issues above the 200-day -- it’s mid-1983, early 2004, and 4Q 2009 -- sure you can get pauses or consolidations from extreme breadth like this, but if you’re familiar with history, you know those dates were anything but fatal for longer-term players.”
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